GBP/EUR & EUR/GBP Weekly Forecast + October Outlook.

Good morning everyone,

The Week Ahead

Brexit developments will remain in focus after last week’s summit in Salzburg. The Labour Party conference began on Sunday while the Conservative Party conference will start on Sunday 30 September. UK Q2 GDP (On Friday) is expected to be unrevised at 0.4%. Timelier indicators of UK economic activity include GfK consumer confidence and Lloyds Business Barometer (both released Friday). Bank of England speakers this week include Vlieghe (Wednesday), Governor Carney and Chief Economist Haldane (both Thursday), and Ramsden (Friday). In the Eurozone, the main attention will be on Italy’s budget announcement, expected by Thursday, with the ‘populist’ coalition government balancing election promises with the European Commission’s budget constraints. The estimate of Eurozone CPI inflation (Friday) is expected to edge up to 2.1% from 2.0%.

GBP/EUR & EUR/GBP Movements (Week)

Anyone looking to do GBP/EUR exchanges this week and want to take a high risk approach, then Fridays GDP data could throw up a positive surprise although comments from the BoE speakers this week could also have an effect on the rate. For those Low Risk takers then the safe bet would be to exchange while rate is in the high €1.11’s.

Anyone looking to do EUR/GBP exchanges should be strongly considering making their exchange while the rate is still in the €1.11’s. Overall most analysts are expecting a Brexit deal to be reached by November. As soon we’re close to seeing an agreement the GBP/EUR rate will rise with some suggesting we could see an increase as much as 5% within days of the official announcement.

With market sentiment for GBP/EUR exchange rate now on a side way/upward trend at time of writing - Current key trading level is now around the €1.1180’s (If we see the rate move higher than this level for a sustained amount of time, then the likelihood of the rate moving towards €1.1230’s will be high). Traders are suggesting that the rate could struggle to push higher than €1.1180’s - €1.1230’s after last week’s EU leader meeting in Salzburg. More confidence is needed that a no deal is less likely before we could see the rate move back into the mid to high €1.12’s this week.

The Month Ahead

For almost a year, the pound has traded within a narrow range against the Euro. Brexit negotiations, potential shifts in the Italian political landscape, and the prospect of tighter monetary conditions in the UK and Europe are all factors that are ‘in play’. The GBP/EUR rate has not been able to sustain rallies above €1.15 or break below €1.10. In the short term, this range is unlikely to change leaving GBP/EUR most likely to continue around these levels until a Brexit agreement is close.

Both GBP and EUR have shown their vulnerability to political risks. In the UK, sentiment towards GBP has moved up as negotiations have progressed. Earlier in the summer, comments from Trade Secretary Fox relating to the risk of a “no deal” exit, led investors to shun the pound. The negativity was exacerbated by the growing divide in the Conservative Party on the notion of a ‘Chequers like’ agreement and speculation on PM May’s future. Optimism had seeped back into the market following EU chief negotiator Barnier’s suggestions that the UK may receive an “unprecedented” deal and an initial agreement could be finalised in November. However, developments from the latest EU meeting at Salzburg have dampened sentiment. Nonetheless, many still expect the UK government to agree a Withdrawal Agreement with the EU and such a deal to be ratified by both UK Parliament and the 27-country bloc. This would pave the way for the UK to leave the EU in an orderly manner.

The key dates in the Brexit process, between now and next March, are: Conservative Party Conference (29-Sep to 3-Oct), EU Summit (20-Oct), prospective EU Summit (13-Nov), EU Summit (13/14-Dec) and deal “deadline” (31-Mar).

Key Economic Data for October 

1st   Oct – UK Manufacturing PMI, EZ Manufacturing PMI

2nd  Oct – UK Construction PMI

3rd   Oct – UK Services and Composite PMIs, EZ Services and Composite PMIs, EZ Retail Sales

10th Oct – UK Trade Balance, UK Industrial Production, UK Manufacturing Production, UK GDP (monthly)

12th Oct – EZ Industrial Production

16th Oct – UK Labour Market Report, ZEW Survey

17th Oct – UK CPI / RPI

18th Oct – UK Retail Sales

23rd Oct – EZ Consumer Confidence

25th Oct – ECB Interest rate decision

30th Oct – EZ Q3 GDP

31st Oct – GfK Consumer

 

GBP/EUR Daily Performance

  • High of the day so far is €1.1185
  • Low of the day so far is €1.1141
  • Resistance at €1.1180’s - €1.1230’s
  • Support at €1.1130’s - €1.1080’s
  • Range €1.11 - €1.13

Current rate at time of writing 11:00am is €1.1182.

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